What is a Trading Floor in India

What is a Trading Floor in India

On a stock exchange, a trading floor is a bustling environment where traders and brokers buy and sell financial instruments. Floor trading is the place where orders are executed. As well as executing orders, trading floors serve as hubs where traders manage their trading account and adjust their positions in real-time.

Since the Securities and Exchange Board of India switched to electronic trading, floor trading is obsolete. Despite this, floor trading is still at the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). In this article, let's look at the concept of a trading floor in India, its structure, and the types of traders on the trading floor.

Understanding Trading Floor in India

Trading floors are areas of the stock exchange where securities are bought and sold under an open outcry system. The trading floor meaning refers to a physical place where traders and brokers execute trading orders on behalf of their clients. Stocks, equities, commodities, bonds, derivatives, etc., are traded on the floor trading. The trading floor is also called a front office, dealing room, and trading room.

Additionally, floor trading is called a 'Pit' because they're a circular area, and traders step into it to place orders. In India, the front office is obsolete because the Securities and Exchange Board of India switched to electronic trading. However, there are still dealing rooms at the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

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Table of Content

  1. Understanding Trading Floor in India
  2. Types of Traders on the Trading Floor
  3. Structure of Trading Floor
  4. How Does the Trading Floor Work?

Types of Traders on the Trading Floor

On floor trading, a variety of traders execute trades. Here are the types of traders:

  • Floor Broker

    The floor broker executes orders and transactions on behalf of a company or client. The firm or client gives the floor broker the orders. However, they don't have the authority to decide or advise the firm or client. They can be salaried or commission-based employees of brokerage firms.

  • Scalper

    Traders who do Scalping try to earn money by taking advantage of temporary imbalances in normal order flows. By using their trading accounts, they take advantage of the imbalances. Also, market depth and liquidity are provided by scalpers because they allow other traders to complete their orders in time and at a similar price to the last trade.

  • Position Trader

    A position taker takes a bigger position than a scalper and holds the positions longer. It's riskier and results in lower turnover. Position traders ensure a higher profit margin to match the higher risk profile. Position traders like the front office because it saves them money without paying brokerage fees to other traders.

  • Spreader

    Spreaders earn money by taking opposing and offsetting positions simultaneously in two or more commodities. By interlinking different but related markets, spreaders create reading pressures that drive market prices. Additionally, spreading increases liquidity between active and inactive markets.

  • Hedger 

    A hedger represents a commercial firm on the floor trading. A trader makes money by taking a position on one market that contradicts their position on another market. The main goal of hedgers is to reduce risk.

  • Specialists 

    A specialist isn't a trader; it's a floor broker or a dealer's broker. The specialists help dealers and floor brokers who operate from specific locations and let them trade from anywhere.

    Structure of Trading Floor

    A trading floor is a circular area where many traders and brokers meet to execute trades quickly. This circular area of floor trading is called the Pit. In a front office, all trading orders are conducted inside the pit. Traders may either step into the pit to face outwards or stand on the steps to face inwards.

    Each front office has numerous booths assigned to different brokers or brokerage firms. In these booths, traders receive orders from the firm or clients through electronic devices such as telephones or computers. By a messenger, the brokers in the pit receive the orders, which the brokers then execute. For effective decision-making, the front office has multiple devices showing trading information like share price, volume, executed orders, etc.

    How Does the Trading Floor Work?

    Trading on a trading floor in India entails various processes that ensure seamless and transparent transactions.

    1. Bidding and Offering

      Traders use gestures and signals to indicate their intentions, similar to expert dancers. This visual language indicates the intent to purchase or sell and is the foundation for trade transactions.

    2. Forming Informal Contracts

      The trading floor facilitates the formation of informal agreements. When buyers and sellers agree on conditions, an unspoken contract is created, supported by the honor of merchants.
    3. Deal Recording

      Record transaction facts such as asset, amount, price, and persons involved. This record-keeping is critical to openness and accountability.

    4. Confirmation

      Traders indicate their intention to complete the deal. Once both parties acknowledge the agreement, it becomes binding, and the assets are transferred appropriately.

      Conclusion

      In stock exchanges, trading floors are bustling places where traders and brokers execute orders. While front offices have become obsolete because of electronic trading, they still exist on major Indian exchanges such as the NSE and BSE. Moreover, the trading floor in India plays an important role. A wide range of traders are on the floor, including floor brokers, scalpers, position traders, spreaders, hedgers, and specialists. You can explore the online trading app to take leverage of stock trading in India.

      FAQs on Trading Floor in India

      Floor trading is a physical area where people trade equities, fixed incomes, futures, and options.

      Some people say that a trading pit helps relay the message and can help assess a trader's intentions behind a buy or sell. Also, trading face-to-face simplifies complicated orders like commodity futures or options.

      After India switched to electronic mediums, floor trading became obsolete. Yet, there is still floor trading at two of the biggest stock exchanges: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

      The trading floor is also called a front office, dealing room, or trading room.

      Yes, NSE has a trading floor.

      Some people say that a trading pit helps relay the message and can help assess a trader's intentions behind a buy or sell. Also, trading face-to-face simplifies complicated orders like commodity futures or options.